Economists project slow growth for N.J., see public cuts dragging economy

November 14. 2011 2:07PM

Economists project slow growth for N.J., see public cuts dragging economy

Regional economists today gave a tempered outlook for New Jersey’s economy at a forum hosted by the state Department of Treasury.

Several themes were repeated by the economists, with some saying cuts in public employment have proven to be a drag on the state’s employment situation.

In addition, Charles Steindel, the state’s chief economist, detailed a study he conducted that supports the position that the 2004 upper-income tax increase has led to residents leaving the state. It is the latest of a series of conflicting studies on the subject.

Joel L. Naroff, of Naroff Economic Advisors Inc., said the recovery from the 2007-09 recession has been unusual, in that housing construction has not rebounded and public employment has fallen during the recovery.

Naroff said New Jersey has benefited from not having as bad a housing crisis as other parts of the country, and is helped by slower mobility to states that were growing before the recession.

“We are slowing the outmigration,” Naroff said. He also said that the state’s ports will benefit from globalization.

But Leonard Nakamura, an economist for the Federal Reserve Bank of Philadelphia, said the high number of foreclosures in the state will continue to be a drag of home sales.

Nakamura pointed to a recent uptick in local government employment as a positive sign, saying it would help lower unemployment and increase consumer confidence, though Treasurer Andrew Sidamon-Eristoff wasn’t certain hire government employment was a good thing.

Federal Reserve Bank of New York economist Erica Groshen said the state has seen increasing “churn” in both the number of residents moving into “new jobs,” in growing fields like health care, and in “old jobs,” like retail. The state benefits from having a higher work force participation rate than the country or New York, partially offsetting a higher unemployment rate.

The closing panel offered suggestions for the future. Loretta Mester of the Philadelphia Fed said it’s important that state officials establish credibility, partially through communicating with residents on issues like Gov. Chris Christie’s state strategic growth plan. Kim Reuben, of the Urban Institute, urged the state to increase pension contributions and cut property taxes, suggesting higher income taxes may be needed. Wayne Hasenbalg, a deputy chief of staff in the Christie cabinet, said the state should target public investment to support the governor’s plan.

Steindel estimated the state is losing $125 million in tax revenue due to the 2004 tax increase, which raised the rate on income greater than $500,000 from 6.37 percent to 8.97 percent. He came to a different conclusion than that of Charles Varner, of Princeton University, and Cristobal Young, of Stanford University, who found the effect of the increase was small. Varner attended the event and disputed Steindel’s interpretation of his study.